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The scarcity of affordable petfood ingredients

Declines in key crops and the corresponding rise in prices have global ramifications for several industries, including petfood

The US Department of Agriculture’s August supply-and-demand report provided another sign of what some people in our industry fear is an impending apocalypse: the ever-increasing decline of available, affordable ingredients. This latest report centered on the US corn crop, for which USDA cut production another 15.4% after a devastating drought decimated much of it, along with other grains grown in the US Midwest. This is having a profound impact on the prices and availability of other ingredients, particularly protein sources.

For US corn, USDA is now forecasting 10.97 billion bushels for 2012, down from the July forecast of 12.97 billion bushels and 2011’s production of 12.36 bushels. That will result in a corn-crop yield of 126.2 bushels per acre—a decline of 13.6% from USDA’s July forecast of 146 bushels per acre—and corn inventories at the end of the 2012â€“2013 marketing year at their lowest levels since 1995â€“1996, according to Dow Jones Newswires analysts. Similarly, soybean production is projected to decrease 8.7%, leading to the lowest soybean inventories since 2003â€“2004.

With the decline in supply comes a corresponding climb in prices. For corn, that means a new high nearly every week, with a 60% increase from about mid-June to the second week of August, when the price landed (temporarily) at US$8.23 per bushel. Soybean prices are also soaring, hitting a record of US$17 per bushel in July and settling at US$16.28 per bushel in mid-August.

Even for petfood manufacturers that do not use corn or soybean in their formulations, these drops in supply can significantly impact the price of other grains and, especially, the price of protein ingredients because of the number of food production animals that eat feed made from corn and other grains. Because of our global economy, these crop shortages in one of largest grain-producing countries can affect feed, food and petfood producers around the world.

That global impact creates some interesting developments. For example, the Financial Times and WattAgNet.com reported in late July that buyers of corn in the US were actually seeking to import corn from Brazil. “According to port records, 2008 was the last year foreign bulk corn arrived on the US mainland, and it was in the form of seeds,” said WattAgNet.com. “Traders say meat companies along the US east coast can purchase Brazilian corn at a US$12-per-metric-ton discount to US corn. Chicago corn futures reached a record US$8.24 per bushel on July 20, or US$324 per metric ton.”

At the same time, corn growers in Argentina were asking their government to lift an export cap so they could take advantage of the rising global demand in the wake of the severe drop in the US crop. The growers said they could boost output by up to 60% and reach 31 million metric tons if the current 15 million ton cap is lifted.

Meanwhile, ever-enterprising China had animal feed producers wanting to sell back corn previously purchased from the US, when prices were below US$6 per bushel, to take advantage of the now record-high prices, according to Reuters. (In case you needed further proof that China is always seeking to become an even bigger player in the global economy.)

This mad scramble on the world stage to find (or sell) ingredients at manageable prices lends even more credence to the concern of some petfood experts about the scarcity of ingredients, especially ones currently used to feed just about all species, human or animal. Some of those concerns were expressed in the August issue (see www.petfoodindustry.com/46491.html). Watch for suggested solutions to this problem in the October issue.